Performance Management and Delivery Unit (Pemandu) CEO Datuk Seri Idris Jala, the main man behind the Economic Transformation Programme (ETP), managed to squeeze out an hour from his busy schedule to answer some vital questions in an interview with Risen Jayaseelan and P Gunasegaram.
Can you explain the funding aspects of the EPPs (entry point projects)? The MRT is a good example. It is said Greater KL is going to be funded 66% by the private sector. Does that mean that 66% of the circa RM40bil for the MRT will come from the private sector? How come there are reports that the MRT will be largely funded by the Government from allocations in the 10th Malaysia Plan (MP) and 11MP? Will the Government be providing some kind of guarantee to these projects, such as guaranteeing the bonds (that will be issued to fund these projects) or will the Government be promising a payment of a fixed fee to the operator of the MRT?
Firstly, based on the feedback we have received from the ETP Open Day, we have done one quick change and renamed Greater KL to Greater KL/Klang Valley.
In the 11 sector NKEAs (national key economic activities), the public funding portion is small. Greater KL has the largest public sector funding and this reflects the critical role adopted by the Government to continue to invest, especially in public service infrastructure, to support the pace and scale of Greater KL's growth. More importantly, in the overall growth of the country, it is extremely critical to have a vibrant, buzzing capital city.
Of the 34% public funding, almost 90% or about RM50bil over the next 10 years, will go to two priority EPPs the mass rapid transit (MRT) and high-speed rail systems. This will require a new public-private partnership model to reduce total public investment requirements through two levers.
The first is packaging commercial opportunities. Private sector funding can be increased by linking the infrastructure project to other high profit-generating opportunities such as property development e.g. investment in MRT can be cross-subsidised by monetising the air-space development rights on and around rail stations. Hence, station locations will not be selected only on the basis of accessibility and connectivity but also on air rights or developmental potential.
The second is addressing total costs to drive capital productivity. The goal is to reduce overall cost from a lifetime cost perspective, covering both upfront capital cost and subsequent operations and maintenance cost. Through value management and world-class delivery, ensuring a design that meets functional requirements and optimising procurement and construction costs, the investment requirements will be significantly reduced.
To date, the Greater KL MRT is still undergoing a detailed technical study and further work needs to be done to assess the areas of cost reduction we can take. We cannot comment on the specific financing/guarantees to these projects e.g. bonds or fixed fee as we are still evaluating various options alongside the relevant agencies e.g. Spad (Malay acronym for the Land Public Transportation Commission).
The public funding for the project is allocated under the 10MP and will similarly be allocated under the 11MP. Initial portion of the public funding will be included in Budget 2011 to be tabled next month in Parliament.
Is 66%of the MRT going to be funded by the private sector?
No, that's the figure for the whole of greater KL. It's likely to be higher for the MRT.
What about funding for the MRT? RM36bil is a lot for the private sector. If the Government guarantees that, will it be taking too much risk?
Those are questions we will address later. Spad is still pursuing a technical review and the form of financing. We have an economic council which is chaired by the Prime Minister, we have the Deputy Prime Minister, the Second Finance Minister, myself, the Chief Secretary, the Bank Negara governor, the NEAC (National Economic Advisory Council) and all director-generals are in the room. The council provides a very objective view of what is important for the country. That forum meets every Monday. We will look at all those questions.
Is the MRT a done project?
It is already in the 10MP. If we make a simple projection, there will be 10 million people in Greater KL by 2020, up from 6 million currently we cannot NOT have a proper urban transport system. It is absolutely essential in terms of what we want to do for Greater KL.
Is this an endorsement of the private sector MRT plan?
No. All project pre-labs (the laboratories set up to come up with the ETP) have been taken into account whether firm or not. Does it make sense? What changes are needed so that it makes more sense? Does it connect all developments? Does it connect to the tourist belt? Is there connectivity to the existing lines such as the existing light rail transit and KTM Komuter? Is there integration, including one card (for access to the various systems)?
We also need to talk about livability of the city. There is a need to clean up the river, green the city, better sewerage system, etc. All these are part of the greater KL development as well as the high-speed train between KL and Singapore. Large cities live off each other when we connect two cities. The multiplier effect from connecting cities is very big. Of course, connecting is by other means as well such as land. The details need to be worked.
What are you impressions about cost?
Cost is dependent on returns. We tried very hard to estimate a ringgit contribution. We prioritised projects based on their potential contribution to gross national income (GNI). A large chunk of the GNI comes from greater KL (RM392mil or about a third of the total). But that's typical large cities contribute to higher incomes.
Can the Government afford to build the MRT?
Yes. Because revenue comes in from the (increased contribution from) other sectors tourism, wholesale and construction, etc. If you run on the basis of ticket sales, you will lose. In Hong Kong, only 30% of revenue from the MRT is from ticket sales, the rest is from sale of air space, retail and so on.
I guess there's a lot of scepticism because of the mega projects that we have had before where money is spent but there are no returns.
Yes, but for me, this (MRT) is absolutely essential.
Do you see the Government bureaucracy as a major obstacle to the ETP?
For example, there are still complaints that the Government is slow to provide things like visas for expatiates in Malaysia and other approvals for business to take place e.g. Datuk Seri Tony Fernandes' claim that AirAsia X isn't provided sufficient routes that he wants even though he has already the funding in place to buy new planes for those routes?
Through discipline of action, problems to project implementation will be dealt with. Pemandu holds weekly problem-solving sessions, while the PM holds monthly progress updates. Because ETP is a programme, it is anchored on specifics action items, timelines and project owners, amongst others. Projects are under constant scrutiny and pressure to perform.
In business, there are three scenarios i.e.
1. Regulated market 2. Managed liberalisation 3. Full liberalisation
Globally, in the airline industry, there is no country that implements scenario three.
Most countries are in scenario two, including the United States, Europe, Australia and even our neighbours in Singapore. We are working towards a win-win for Malaysia Airlines and AirAsia.
There is a feeling that some proposals are skewed to benefiting certain parties and not others or have questionable consequences. For example, in the financial lab, there is a plan to allow an increase in the volatility of the market and to allow market makers to conduct intraday short-selling. But this will only do certain market participants good, like brokers and the stock exchange and investment bankers. But what good does it bring to the country?
One needs to consider the total value chain of benefits. While certain EPPs may seem to benefit certain groups or segments, ultimately the entire country benefits through GNI generation, jobs creation, multiplier effects and confidence, creating a virtuous circle of growth.
How will the EPPs be tendered out? Will there by an open tender and if so, wouldn't this be a lengthy process?
Almost all the EPPs were proposed by individual companies or consortia in the labs, that are then committed to own delivery of these EPPs. In similar fashion, any other companies that wish to propose a project or take advantage of a business opportunity in their respective sectors, are welcome to do so. In fact, most of the EPPs are not limited to any particular players. For example, two local hypermarket retailers have committed to helping small retailers modernise via the Program TUKAR EPP under the wholesale and retail NKEA. We hope this in itself will be catalytic and other retailers will also participate. The pie is big enough for many to benefit.
When new projects are proposed, the Government will facilitate dialogue between relevant parties and ensure key processes, such as project tendering, are executed in a fair and transparent manner.
It is very important that we must get value for money not necessarily the lowest cost. Quality and cost must be taken into account. Sometimes, restricted tender can be better (than open tender) but we must know the benchmarks under those conditions we need tremendous amount of data and international costing for this. Once you know that, you can negotiate down the contract.
In an open tender, there is a tendency to overprice by all of the participants but it still remains a very important route (for getting reasonable prices).
But is it not possible to negotiate a competitive or open tender after shortlisting candidates?
Yes, that can be done too.
Has the Selangor government and its municipality been engaged to achieve the Greater KL NKEA?
We have involved a large number of people more than 1,500 from the private sector, civil society and NGOs through our 1,000-person workshop and the eight-week lab. We engaged with them at the initial stages of the lab,and we intend to have more discussions on an ongoing and needs basis.
The Selangor Mentri Besar will be invited to be a member of the Greater KL Steering Committee, chaired by the FT Minister and ultimately, sponsored by the PM, along with the relevant ministerial chief secretaries, senior officers of federal and state agencies, and key private sector executives.
Who are the drivers/authorities in each NKEA? Are the private sector members who may be competitors to the companies proposing the projects also included on the committee for decision-making?
Almost all EPPs will be led by the most natural owner in the private sector. The responsibility rests in the private sector managers who lead implementation efforts on the ground. Each EPP owner will be responsible to meet milestones set out by the ETP labs.
Each NKEA has a lead minister appointed by the PM. They are accountable for total NKEA performance (GNI and job targets). They will review the EPP's progress against detailed milestones at the NKEA Steering Committee and decide on new proposals.
Pemandu will support and facilitate the EPP owners, helping them resolve challenges where necessary.
Glossary of terms:
ETP: Economic Transformation Programme, recently unveiled by Datuk Seri Idris Jala, Minister in the Prime Minister's Department, aimed at turning the country into a high income nation by 2020.
GTP: Government Transformation Programme, launched by Jala earlier this year and aimed at improving the quality of public services, increase efficiency, and make the government more transparent.
NKEA: National Key Economic Activities, there are 12 of these decided by the cabinet, based on feedback from a workshop that involved 1000 people from various quarters. NKEAs are said to be drivers of economic activity that have the potential to contribute to economic growth
GNI: Gross National Income, comprises the total value produced within a country (i.e. its gross domestic product), together with its income received from other countries (notably interest and dividends), less similar payments made to other countries.
NEM: New Economic Model, launched by the Prime Minister in March, targets specific key economic activities to be driven by the private sector and proposed economic reforms based on market-friendly policies. The Government has spelled out three principles high income, sustainability and inclusiveness which the NEM would be based on to boost per capita income to US$15,000 by 2020.
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